COST Analysis

Update 12/8/2016: I exited COST for a loss after it moved well beyond my boundaries after earnings were announced.

Shares rose by 5.0% over one day, or a +1,827% annual rate. The options position produced a -20.2% loss on debit for a -7,354% annual rate


 

Costco Wholesale Corp. (COST)

COST publishes earnings on Wednesday after the closing bell.

I shall use the JAN series of options, which trades for the last time 44 days hence, on Jan. 20.

Implied volatility is 22%, which stands in the 52nd percentile of its annual range and the 86th percentile of its most recent broad movement. The price used for analysis was $152.49.

Iron fly, short the $150 calls and long the $160 calls,
short the $150 puts and long the $140 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money

JAN Strike OTM Δ
Call 150 43.2% 60
Put 150 57.6% 40

The premium is $6.45, which is 64% of the width of the position’s wings.

The risk/reward ratio is 0.6:1.

Decision for My Account

I have entered a position on COST as described above. The stock at the time of entry was priced at $152.82.

Tim Bovee, Portland, Oregon, Dec. 7, 2016

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